The multi-divisional firm’s transfer pricing policy under Cournot-Bertrand mixed competition in final goods market is analyzed. By using the backward induction in a dynamic game, the equilibrium transfer pricing strategies can change with the differentiation of the final goods. If the competitor produces only the final output, the optimal internal transfer price is higher than the marginal cost and optimal strategy is price-output competition. If the rival firm is vertically
integrated, the optimal transfer price is higher(lower) than the marginal cost under output-price(price-output) competition. Moreover, output-price competition is superior to the price-output strategy for the multi-divisional firm.